Market Outlook: A Bullish Perspective
As we navigate the complexities of the capital markets, our team employs a three-pronged approach to asset allocation, tailored to individual risk tolerance. This framework consists of Conservative, Growth, and Aggressive models, which are periodically refined based on our market outlooks.
Growth Segment: A Closer Look
December proved to be a challenging month for investors, with the S&P 500 experiencing a 2.4% decline, closely mirroring the 2.3% drop in the fixed-income benchmark ETF AGG. Despite this, the full-year picture reveals a robust 25% return for equities, contrasted with a 2% decline for bonds.
Stock-Bond Barometer: A Balanced Approach
Our proprietary model suggests a modest preference for bonds over stocks in the long-term portfolio positioning. This indicates that both asset classes should be maintained at or near their target weights in diversified portfolios, with a slight bias towards bonds, driven by the recent interest rate hike.
Large-Cap Focus
We maintain an overweight position in large-caps, driven by their growth potential and financial stability. In contrast, small-caps offer value opportunities. Our recommended allocation to small- and mid-caps stands at 10%-15% of equity exposure, below the benchmark weighting.
U.S. Stocks: A Dominant Force
The U.S. stock market has consistently outperformed its global counterparts over the past one and five years. We anticipate this trend to persist, fueled by volatile global economic, political, and geopolitical conditions. Nevertheless, international stocks present attractive near-term valuations, prompting us to target 5%-10% of equity exposure to this group.
Growth vs. Value: A Shifting Landscape
After a strong rebound in 2024, growth stocks have outperformed value stocks. Looking ahead, we expect growth to maintain its momentum, although value opportunities should not be overlooked.
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